Supply-side economics is being touted as the cure for sluggish economic growth in the US – or at least the inability of Obama’s economic policies to raise wages for most working class American’s. Supply-side economics is named after the side of economic stimulus if affects – Keynesian economics concentrates on increasing demand primarily through increased government purchases during recessions, while supply-side economics aims at increasing the supply of goods and services by making it more financially attractive for businesses and individuals to invest. Hence the nickname “trickle-down economics” since the idea is to give businesses and the wealthy more money for investment that will create more jobs resulting in increased wages.
Supply-side economics theoretical underpinning was developed by Arthur Laffer as a means of re-inventing his academic career at the same time Ronald Reagan was looking for something to invigorate his 1982 presidential campaign. It is nothing more than justification for lowering personal and corporate taxes without any increase in the deficit or cut back in government spending that could bring political and voter push-back.
In 1982, Reagan was lagging in the Republican presidential primaries behind George H. Bush. Bush with his long history of government service and ties to the oil industry looked secure in the race to be president. Reagan needed a gimmick. Art Laffer presented him with an idea that came to be known as the Laffer Curve. The basic idea was that under some circumstances, taxes could be so high as to discourage economic activity. By reducing taxes, economic activity would increase and the higher level of economic activity would generate more tax revenues allowing government to expand social services. Laffer developed the theory with zero evidence other than the 1962 Kennedy tax cuts that jump started the US economy – a different time with different circumstances.
But the appeal of Laffer’s theory combined with Reagan’s persuasive presentation, convinced people to elect him over Bush under the guise of cutting taxes.
History tells us what happened. Reagan was elected, taxes were cut, the budget deficit ballooned and social services were cut. During Reagan’s term the deficit was important but not the top priority of lawmakers. It wasn’t until Clinton’s term that suddenly controlling the deficit was the most important thing in government (which means controlling entitlements and government spending on non-defense items). Of course, during the Bush years the deficit was unimportant [remember Cheney’s “deficits don’t matter?”] until Obama was elected and then the deficit was the most important thing until the Trump election.
Supply-side’s continued failure to result in increased government revenues isn’t necessarily bad from the viewpoint of the right in the US and abroad. Any politician opposed to government entitlement programs talks about increasing revenues [to avoid having the deficit balloon] and then argues the need to cut taxes to stimulate the economy.
Europe went through the deficit control during the Greek banking crisis resulting in low European economic growth for ten years. Kansas, under Brownback, has seen its state economy implode under supply-side theory – in fact, there has been no successful implementation of supply-side economics since Laffer introduced his theory. And yet, rather than throw the idea away as a failed theory with no facts to back it up, Republicans continue to embrace it.
The reason for their love goes back to the 1930’s when Roosevelt implemented the Great Society program that Republicans have fought for the past 80 years. If the government is running a surplus what is the justification for helping the nation’s needy. But if the government is in constant budget crisis, we have to choose – keep running the government as a money losing venture that pushes up interest rates or cut social programs. Republics always choose cutting social programs.
Now we have Trump latching on to Paul Ryan’s vision of America. To Paul Ryan with his libertarian views, hungry people on the corner and the homeless leaving in the desert isn’t a downside of American life, it is a demonstration of how only the lazy and worthless refuse to work. Taking money through taxes from the deserving is the crime, not the problems with un or under-employment or hunger or homelessness. Those are just the fall-out of our capitalistic system that rewards those who work.
Trump has adopted Ryan’s failed ideas – not because he sees it as a way to encourage economic growth but as a way to justify cuts in social programs to spend money on defense and security, something that always appeals to a coward.
As Trump and Ryan start rewriting the tax codes, we have to fight against lowering corporate and high income tax cuts. This money won’t be coming back into the economy but only into the bank and stock accounts of the wealthy, helping them but not the rest of us.